Analysis-Investors eye a new market in Central Europe: homes for rent

Five years ago, institutional residential property was almost non-existent. Now, investors believe that housing is challenging office buildings to be their main source of cash. Stanislav Kubacek from Sweden's Heimstaden told Reuters that there are large cities in central Europe with positive economic and demographic dynamics and a strong housing market. These are great ingredients for residential rental investment. According to a CMS report and CBRE report, investment in this sector, which is mainly in Poland, rose 38% to 130 millions euros ($138 million), in the first half 2022.
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Market players claim that new projects are being encouraged by higher yields and greater growth potential. NREP, a Danish company, entered the Polish market in 2021. It plans to invest 500 million euros over the next three-years in the residential and logistics sectors, with major projects in major cities like Warsaw, Wroclaw and Gdansk. "Investors see a clear market opportunity because younger generations are becoming more open for renting, following the trend in Western Europe over the past decades, while there is limited supply of modern rental stock," Rune Kock (chief executive of NREP’s real estate division) told Reuters.
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Poland is an OLD and OVERCROWDED country. Its largest economy and home to 3 million people, Poland, is a standout. However, there are also opportunities in the Czech Republic and possibly Hungary. Radim Bajar is a partner in Czech investment group Mint Investments. He said that his 1.25 billion Czech crown (54.81 million dollars)fund was looking at projects in Prague, Brno, and Plzen with the goal of adding 300 to 500 apartments to its portfolio next fiscal year. Radim Bajar told Reuters that he was currently amazed at the pace of market changes and the speed with which they are changing.
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"We expect that over the next 10 year, two-thirds (or more) of the apartments in this country will be sold by funds like ours and one-third to homeowners. Eurostat data shows that Poland has a high level of overcrowding. This is when homes don't have enough space for their number of inhabitants. This compares to the 17.5% average in Europe. Many of the housing stock are Communist-era flats that were often prefabricated and badly in need for modernisation. This is a huge advantage for developers who can target an expanding pool of expatriate workers by offering amenities such as high-speed internet and gyms, as well leases in English.
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According to Griffin Capital Partners partner Marek Obuchowicz: "There is a significant gap in things like quality, stability, and predictability leases between institutional players and private landlords." This makes it a good entry point for private rented sector (PRS) players. ** Interactive graphic available: GRAPHIC. Private Rented Sector (PRS), yields in European Cities (URL.png). PRICED OUT The 2008 financial crisis has seen a huge rise in home prices. This was fueled by economic growth and a decade-long period of low mortgage rates. G City Europe, formerly Atrium European Real estate, Managing Director Residential for Rent Anna Dafna said to Reuters that they will continue their strategy of investing in major Polish towns.
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She stated that the company will launch a project to construct 500 units in Warsaw during the first quarter 2023. Cushman & Wakefield data indicates that the yields on residential real property are currently 100 to 200 basis points higher than those in western Europe. Warsaw's yield is 5%, Prague is 4.10%, and Amsterdam at 3%. London's yield is 3.25%. Demographic change is another factor.
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Both before and after the conflict in Ukraine, there has been an increase in immigration to Poland. Wysokinska Kuzdra, a senior associate at Collier's Warsaw, said that this has also exacerbated housing shortages. Wysokinska Kuzdra stated that many institutional investors want to be the first to move in and gain an advantage. Some potential home buyers have been priced out by a sharp rise in regional interest rates over the past year.
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Developers are paying more for construction. Some investors are focusing only on current projects because of the uncertainty created by the war in Ukraine. Analysts and investors agree that these are minor issues that won't stop a market which is expected to triple by 2028 to include more than 63,000 apartments in Poland according to a PwC report.
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TAG Immobilien AG, Germany's largest property developer, stated in its third quarter report that they plan to accelerate construction in Poland. Flatco Kft, a Budapest-based company is looking for acquisitions. Flatco Kft chief executive Marta Jacoby told Reuters that "the demand is there." ($1 = 0.9406 euro) ($1 = 22.8040 Czech crowns). (Writing and additional reports by Michael Kahn. Editing by Catherine Evans.) Canan Sevgili and Jason Hovet.